Insurance is a Local Phenomenon

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Del curso dictado por Yale University

Financial Markets

2985 calificaciones

Yale University

Financial Markets

2985 calificaciones

An overview of the ideas, methods, and institutions that permit human society to manage risks and foster enterprise. Emphasis on financially-savvy leadership skills. Description of practices today and analysis of prospects for the future. Introduction to risk management and behavioral finance principles to understand the real-world functioning of securities, insurance, and banking industries. The ultimate goal of this course is using such industries effectively and towards a better society.

De la lección

Module 1

Welcome to the course! In this opening module, you will learn the basics of financial markets, insurance, and CAPM (Capital Asset Pricing Model). This module serves as the foundation of this course.

Insurance Fundamentals10:33

Insurance Milestones6:59

Insurance is a Local Phenomenon6:02

Health Insurance6:22

Conoce a los instructores

Robert Shiller
Sterling Professor of Economics at Yale University
Economics

Insurance is a complicated thing because it

has been regulated for centuries and it's often regulated at the local level.

In the United States insurance is a really local phenomenon.

The Dodd Frank Act of 2010 created a federal insurance office.

But it's really mainly just a monitoring for risk.

There are no national insurance companies, they all have state charters.

Also, what protects you if your insurance company goes under?

Well, the regulator is supposed to have checked that they're doing things right.

But what if the regulator messes up and you buy insurance?

And now there's some big catastrophe and the insurance company goes bankrupt and

can't pay you.

So the state governments have set up insurance guarantee funds.

There's a lot of complexity to this whole business.

It's not so simple and easy.

So the first step, it wasn't until the 20th century that these even setup.

It's like deposit insurance when you have a bank.

When you go to the bank,

you'll see FDIC insured, Federal Deposit, Insurance Corporation, but

we have similar insurance of the failure of the insurance companies.

But not until 1941.

There was no insurance guarantee.

So, here's our local insurance guarantee fund, Connecticut Life and

Health Insurance Guaranty Association.

It was created in 1972, it's not, that long ago.

It's kind of remarkable, that before 1972 if your insurance company failed in

Connecticut you were just out of luck.

But now they will ensure your insurance against

a maximum death benefit of $50,000.

It's still not big enough because if you as a young person,

what is your present value, your lifetime present value?

It must be several million dollars.

So $500,000 just doesn't cut it, but at least it's something.

Other countries have insurance.

The China Insurance Regulatory Commission has set up a state-owned

non-profit called China Insurance Protection Fund

that protects people against the failure of an insurance company.

But again, they're limited to 50,000 yuan, which is not much money.

So we still live in a world that's highly, you gotta watch what you get into and

check things.

One thing I like, this is a course in financial markets, and

I like this institutional detail because to me, it's what makes things work.

>> So, when you're talking about AIG the last lecture and

how they take the whole government bailout, what's preventing them

from committing their own moral suspicion of moral dubiousness.

If they know hat there's something like a big catastrophes coming again,

they'll get another bail out because they're so big.

Are there regulations im place?

>> Well the financial crisis of 2008 took everyone by surprise.

The bailouts weren't the planned course of action.

It just happened.

It got so severe so suddenly that the government stepped in.

In the US and

in other countries to protect the integrity of the whole financial system.

Now the issue now is does this set a precedent that insurance companies

will say, hey we don't need reserves because we'll just get bailed out.

Well that's a concern and it's been a concern of law makers.

Part of the issue though is that AIG was bailed out but

the stock holders did not do well.

They didn't enrich the stock holders.

It was a disaster.

On top of that I think that our new regulations are stiffer and

and are more aware of that crisis, but you

are getting at a really important problem that too big fail is a natural problem.

When you have a complicated interdependent economic system and if one

big company like AIG fails, that was the biggest insurance company in the world.

Once one company like that fails,

the government isn't wanted to just let it everything fall where it may.

There's a natural tendency to bail out and it's hard to get past that.

We're making efforts to, but it's a fundamental problem.

The US Government took over securities regulation

in the 1930s after the Great Depression.

They formed the Securities and Exchange Commission to regulate stocks and

bonds from the federal level.

They never did that for insurance.

In fact the McCarran-Ferguson Act of 1945 delegated

insurance regulation to the states.

So there's 50 different state regulators, all different.

Now this is chaos, because companies like to operate nationally, but

they have 50 different regulators, one for each state.

So there was a non-profit called National Association of Insurance Commissioners,

NAIC, which is not government.

It's set up by the insurance industry and

they have regular meetings creating suggested laws for insurance.

That helps reduce the complexity of the US insurance system,

because at least the state governments talk with each other, and

standardize their insurance laws somewhat.

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